This was an important week for the markets, with key economic data released and four of the five biggest companies in the S&P announcing earnings. Stocks finished higher this week as the S&P 500 is now positive on the year following the biggest four-month gain in the S&P 500 since 2009. With baseball season starting back up, I have chosen to break down this week’s market news using quotes from Baseball themed movies and shows.
There’s No Crying in Baseball – A League of Their Own
Market shrugged off terrible news without so much as a tear. GDP growth data was released, showing the sharpest quarterly downturn on record, driven by shutdown policies aimed at combating the spread of the coronavirus. The negative GDP growth, however, was better than expected. On the earnings front, half of the S&P 500 companies have now reported earnings with 84% thus far topping expectations. Big tech held the earnings spotlight, with three big tech names (Facebook, Amazon, and Apple) reporting results that were significantly better than expected.
You're Killing Me, Smalls - The Sandlot
Congress devolved into partisan bickering causing negotiations over a fifth coronavirus relief bill to stall. The Fed calmed markets by again acting as the grown up in the room leaving no doubt that they will make good on their "whatever it takes" promise to support the economic recovery. Federal Reserve officials acknowledged that the path of the virus is the most central driver of the economy and activity is well below pre-pandemic levels. As a result, they will continue to hold interest rates near zero and maintain their bond purchases at least at the current pace.
You didn't come into this life just to sit around on a dugout bench, did ya? – Bad News Bears
Sitting on the bench in bonds is not the right call. At current interest rates it will take you 140 years to double your money in bonds. Now is the time if you haven’t already to reduce or even eliminate bonds from your portfolio. Nervousness about the negotiations over the next round of fiscal relief, along with concerns about the sustainability of the rebound, pushed the 10-year yield to its third-lowest closing level (0.54%) on record and the five-year yield to a new record low. Rates may stay around these levels until we get through the pandemic and right now there are far more attractive income oriented investments than bonds.
Sometimes when you bring the thunder you get lost in the storm -Eastbound and Down
The speed and power of this 4-month market rally should have you feeling good about your investments. We escaped the bulk of earnings season, the Federal Reserve's (Fed) policy meeting, and the release of the economic figures from the shutdown unscathed, finishing the week up for the year. Economic data in May and June improved at a fast pace, which reflects the transition from recession to reopening. Housing appears to be on solid footing driven by a jump in the U.S. homeownership rate and record low interest rates. The good news is that this historic decline (more than twice the magnitude of the 2008-2009 contraction) seems to now be in the rearview mirror. Or is it? Better check your sideview as “objects in the mirror are closer than they appear”.
The recovery seems to be losing some momentum in July, as coronavirus cases are rising in different parts of the U.S. with Dr. Deborah Birx this morning saying the virus is more widespread than when it first took hold in the US earlier this year. Reopening measures are being rolled back and timely, high-frequency data like credit card spending, restaurant reservations and trips taken show that the resurgence of the virus is having an impact on consumer confidence and spending. The labor market, a critical element for a sustained recovery, appears to be stalling. The number of U.S. workers applying for jobless benefits increased for the second week in a row and enhanced unemployment benefits which was helping prop up spending expired Friday.
What does it mean for you? I don't think the market will be as volatile as some are forecasting so continue holding your existing stock positions. To the extent you have money on the sidelines waiting to deploy it is the prudent choice. A better opportunity will likely present itself in the next month or two, when it does add to the growth names that have led the market higher like Apple, Microsoft and Amazon.
My name is Stephen Caruso and I am a Financial Advisor who is here to help at any time. If you would like to schedule a phone/web conference appointment, I have included a link to my calendar below and you can self schedule. For those of you who prefer an in person meeting I am now scheduling in person meetings as well, please email me if you would prefer an in person appointment.